I’ve been fuming ever since I first heard about the $75 million liability limit on damages resulting from oil spills. The law that was passed in the wake (no pun intended) of the Exxon spill represents typical collectivist policy–here not in the form of “spreading the wealth around,” but rather “spreading the expense around.” Each company is limited to a maximum of $75 million in damages, with any damages over that cap being paid out by a government-maintained Oil Spill Liability Trust Fund, itself funded by a tax levied against all domestically produced oil.
In a true capitalist system, of course (and as I pointed out in an earlier thread), a company and its shareholders would be fully liable for all damages caused by that company’s actions. As a consequence, you can be sure that a company like BP would not simply have a backup plan for a contingency like this one, but also a backup plan in case the first backup plan failed, and most likely a backup plan to that one as well. Of course, companies could form voluntary agreements if they so chose to share the risk, but if they did so it would be in their interest to ensure that those agreements would include a managing authority that would enforce rigorous safety rules, backup plans, and procedures. (As an analogy, USAT won’t insure your race unless you adhere to a large number of safety-oriented rules.)
Under this socialized system, in contrast, a company like BP doesn’t have to worry too much about large-scale damages. Obviously, $75 million is small change to such a company in comparison with the enormous profits available from such ventures. Of course, the company’s public image will suffer somewhat, but public-relations managers can correct that problem easily enough by putting out a few more ads about BP’s commitment to alternative energy and to the environment. Meanwhile, should anyone really be surprised that the company was so woefully unprepared to contain this spill?
I’m on a Libertarian Party mailing list, and I just received an email that I think sums up the situation pretty well. An excerpt:
The New York Times has reported that federal law limits BP’s liability to $75 million, and Transocean’s liability to $65 million.
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These kinds of artificial liability limits distort the markets, and basically create “moral hazard” by encouraging companies to act in riskier ways than they would otherwise. If BP’s well causes damage to property, then BP should be fully liable for all of the damage. It is BP’s reponsibility to “make whole” whoever gets damaged.
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If Congress hadn’t limited BP’s liability, it’s likely that BP would have acted differently. Knowing that a spill could cost them billions, BP might have demanded additional safeguards for their well, or tested their safeguards more thoroughly. These choices would have been expensive, but they might have prevented the huge costs that the spill area is now facing.
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BP has said that it will pay all “legitimate claims,” even if they go past the liability limit. The problem is that when it comes to property damage, a court should decide what “legitimate claims” are, not the offending company!
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Of course, now we’re likely to see a flurry of reactive legislation, as members of Congress try to pile on BP for political reasons. And, Congress will probably use the spill as an excuse to increase its market interference and shovel more subsidies into uneconomical “alternative energy.”
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(It’s possible that if energy companies did not have the benefits of artificial liability limits, the market might decide that some alternative energy would be cost effective. But that’s for the free market to decide, not Congress using taxpayer subsidies.)
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As the Libertarian Party platform says, “Free markets and property rights stimulate the technological innovations and behavioral changes required to protect our environment and ecosystems.”